The Bank of England has warned that cryptocurrencies need to be regulated as a “matter of urgency” because of the “plausible” risk of a collapse in the market.
In a speech yesterday, deputy governor Sir Jon Cunliffe said a massive collapse in the price of cryptocurrencies to as low as zero is ‘certainly a plausible scenario’ and that there was ‘a possibility of contagion’ across the global financial sector.
Cunliffe said the hit to individual investors if cryptocurrencies collapse would be unlikely to cause a ‘financial stability risk’. But he added: ‘The picture is less clear for financial institutions.’
He compared a possible crypto crash with other financial meltdowns, and highlighted that the crypto market is now worth £1.7 trillion, larger than the sub-prime mortgage market in 2008 when it collapsed.
‘As the financial crisis showed us, you don’t have to account for a large proportion of the financial sector to trigger financial stability problems.’
Cunliffe said regulation of cryptocurrency ‘needs to be pursued as a matter of urgency’.
‘When something in the financial system is growing very fast, in largely unregulated space, financial stability authorities have to take notice.’
The value of the cryptocurrency market has increased by 200 per cent this year.
The comments came as the Bank scrapped holding private meetings with banks and financial institutions.
A source said the decision followed a meeting between a Bank official and a top US investment bank supposedly under Chatham House Rules.
But, as a result, it is understood policy information was revealed.